EUR-Lex Access to European Union law

Back to EUR-Lex homepage

This document is an excerpt from the EUR-Lex website

The European Union’s common system of value added tax (VAT)



Directive 2006/112/EC – the European Union’s common system of value added tax


It recasts and repeals the sixth value added tax (VAT) directive in order to clarify the current VAT legislation in the European Union (EU).


VAT is applied to all transactions carried out in the EU for payment by a taxable person (i.e. an individual or a business that supplies goods and services in the course of their work). Imports by any person are also subject to VAT.

Taxable transactions include supplies of goods or services within the EU, acquisitions of goods between EU Member States (goods supplied in and dispatched or transported by a business from one Member State to a business in another) and imports of goods into the EU from non-EU countries.

  • The place of taxation depends on the nature of the transaction, the kind of product supplied and whether transport is involved.
    • Supply of goods. Where the goods are supplied.
    • Acquisition of goods between Member States. Where the goods are delivered (i.e. the Member State where the goods finally arrive after transport from another Member State).
    • Imports of goods. Usually the Member State where the goods arrive.
    • Supply of services. Where the services are said to be supplied. This depends not only on the type of service supplied, but also on the type of customer receiving the service. The general rule is that a service is taxed at the place of the customer if it is a business, or at the place of the supplier if the customer is a private individual. To ensure that the service is taxed at the place where it is actually used, there are some exceptions to these general rules, such as:
      • services connected with immovable property (real estate);
      • passenger transport;
      • activities relating to culture, sport, education and entertainment;
      • restaurant services.
  • VAT is charged when the goods or services are supplied, according to the nature of the transaction. VAT may be charged for an acquisition of goods between Member States when the supply of goods to the relevant Member State is completed. For imports into the EU, VAT is charged when the goods are brought into a Member State.
  • The taxable amount for supply of goods and services and the acquisition of goods between Member States includes all payments to the supplier. Where goods are imported, this amount is their value for customs purposes. Duties, taxes and other charges are included in the taxable amount, but the VAT itself, price discounts and rebates granted to the customer are excluded.
  • The standard rate of VAT to be applied by all Member States to goods and services is at least 15%. Member States may apply one or two reduced rates of at least 5% to specific goods or services listed in Annex III to the directive. A number of exceptions to these rules (e.g. lower rates on other goods or services) also apply under certain conditions.
  • The directive allows for exemptions from VAT. Most of these are exemptions without the right to deduct (e.g. medical care, social services or financial and insurance services). However, exemptions with the right to deduct also exist (e.g. supplies of goods between Member States or exports of goods to a non-EU country). Most exemptions are compulsory for Member States, but some are optional.
  • A taxable person may deduct the amount of VAT paid on acquired goods or services used for taxed transactions in the Member State where these goods or services are acquired. This input VAT can be deducted from VAT payable on taxed transactions (e.g. domestic supplies of goods or services). There is generally no right to deduct in the case of an economic activity that is exempt from VAT, or if the taxable person applies certain special schemes. In certain cases, deductions may be limited or adjusted.
  • The directive sets out the obligations of taxable and certain non-taxable persons. Generally, VAT is payable by any taxable person making a taxable supply of goods or services. Exceptions include specific transactions where the customer pays VAT (e.g. services provided to a business by a supplier in another country, and transactions where the Member State may choose to designate the customer to pay VAT, as with certain fraud-sensitive supplies).
  • The directive permits exceptions by the Member States from standard VAT rules (e.g. to prevent certain types of tax evasion). There are also special VAT schemes designed to reduce paperwork (e.g. for small businesses and for farmers).
  • In addition, it allows the Member States that are most severely affected by VAT fraud to temporarily apply a generalised reversal of VAT liability. This involves shifting liability for paying the VAT from the supplier to the customer. The Member States may use this measure only for supplies of goods and services in their own country of more than €17,500 per transaction, only until 30 June 2022 and under very strict conditions.

A number of amendments have been made to Directive 2006/112/EC, including some amendments due to the COVID-19 pandemic.

  • Directive (EU) 2020/284 amends the directive, introducing certain requirements on payment service providers to keep records of e-commerce cross-border payments. The data will then be made available to national tax authorities under strict conditions, including those related to data protection. These requirements apply from 1 January 2024.
  • Amending Directive (EU) 2020/285 introduces simplified rules to reduce the administrative burden and compliance costs for small businesses, and to create a more advantageous tax environment to help them grow and trade across borders more efficiently. Small businesses will be able to qualify for simplified VAT compliance rules, where their annual turnover remains below a threshold set by the Member State concerned, which cannot be higher than €85,000. Under certain conditions, small businesses from other Member States that do not exceed this threshold will also be able to benefit from the simplified scheme, if their total annual turnover in the whole of the EU does not exceed €100,000. These new rules apply from 1 January 2025.
  • The VAT e-commerce package (Directives (EU) 2017/2455 and (EU) 2019/1995, both amending Directive 2006/112/EC) introduced new simplifications for companies carrying out cross-border sales of goods or services. It ensures that VAT on such supplies is paid correctly to the Member State of the customer, in line with the principle of taxation in the Member State of destination. The first measures entered into force in 2015 and covered only telecommunications, broadcasting and electronic services. Businesses providing business-to-consumer supplies of goods or services in the EU can now declare and pay VAT in a simplified system (one-stop shop).
  • As a consequence of the COVID-19 pandemic, Decision (EU) 2020/1109 postpones the date of entry into force of the second package from 1 January 2021 to 1 July 2021, in order to allow Member States and businesses to have more time to prepare for the new rules.
  • Directive (EU) 2020/1756 amends Directive 2006/112/EC, following the United Kingdom’s (UK) withdrawal from the EU, introducing VAT identification numbers in Northern Ireland with a specific prefix to distinguish between:
    • taxable persons and non-taxable legal persons, whose transactions involving goods in Northern Ireland are subject to EU VAT legislation;
    • persons carrying out other transactions, for which they are identified for VAT purposes in the UK.
  • Directive (EU) 2020/2020 amends the directive to ensure more affordable access to supplies of COVID-19 vaccines and in vitro diagnostic medical devices (test kits) in response to the COVID-19 pandemic in Europe. From 12 December 2020 until 31 December 2022, it allows Member States to:
    • exempt from VAT with the right to deduct the supply of COVID-19 vaccines and in vitro diagnostic medical devices, and services closely related to these vaccines and devices;
    • apply a reduced rate of VAT to COVID-19 in vitro diagnostic medical devices and related services, as is already the case for vaccines.
  • Directive (EU) 2021/1159 amends Directive 2006/112/EC as regards temporary exemptions on imports and on certain supplies, in response to the COVID-19 pandemic. This will make it easier for the European Commission and EU agencies to buy goods and services in order to distribute them free of charge (i.e. as donations) to Member States in the context of the ongoing public health crisis.

Reform of the VAT system

As part of the reform proposed in the Commission’s 2016 action plan on VAT, amending Directive (EU) 2022/542 amends Directive 2006/112/EC by:

  • updating the list of goods and services for which reduced VAT rates are allowed (Annex III); however, the number of items to which reduced rates can be applied is limited to prevent a proliferation of reduced rates;
  • opening up the existing exceptions allowing certain Member States to apply preferential rates to certain products to all Member States, provided they are compatible with the agreed principles;
  • phasing out periods for reduced rates or exceptions applied to products with a negative impact on the environment (e.g. on fossil fuels and other goods with a similar impact on greenhouse gas emissions, which no longer apply from 1 January 2030 at the latest, and on chemical pesticides and fertilisers, which no longer apply from 1 January 2032 at the latest);
  • allowing Member States to apply a reduced rate, in particular, to:
    • internet access services to address the low coverage of these services and promote their development,
    • solar panels, electric bicycles and waste recycling services considered to be environmentally friendly goods and services,
    • goods and services serving specific social and cultural policy purposes.


Directive 2006/112/EC has applied since 1 January 2007 and had to become law in the Member States by 1 January 2008.


For further information, see:

  • VAT (European Commission).


Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, pp. 1–118).

Successive amendments to Directive 2006/112/EC have been incorporated into the original text. This consolidated version is of documentary value only.


Council Directive (EU) 2020/285 of 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises and Regulation (EU) No 904/2010 as regards the administrative cooperation and exchange of information for the purpose of monitoring the correct application of the special scheme for small enterprises (OJ L 62, 2.3.2020, pp. 13–23).

Council Directive (EU) 2020/284 of 18 February 2020 amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers (OJ L 62, 2.3.2020, pp. 7–12).

Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee on an action plan on VAT Towards a single EU VAT area – Time to decide (COM(2016) 148 final, 7.4.2016).

Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax (OJ L 268, 12.10.2010, pp. 1–18).

See consolidated version.

Council Directive 2009/132/EC of 19 October 2009 determining the scope of Article 143(b) and (c) of Directive 2006/112/EC as regards exemption from value added tax on the final importation of certain goods (OJ L 292, 10.11.2009, pp. 5–30).

See consolidated version.

Council Directive 2008/9/EC of 12 February 2008 laying down detailed rules for the refund of value added tax, provided for in Directive 2006/112/EC, to taxable persons not established in the Member State of refund but established in another Member State (OJ L 44, 20.2.2008, pp. 23–28).

See consolidated version.

Council Directive 2007/74/EC of 20 December 2007 on the exemption from value added tax and excise duty of goods imported by persons travelling from third countries (OJ L 346, 29.12.2007, pp. 6–12).

Council Directive 2006/79/EC of 5 October 2006 on the exemption from taxes of imports of small consignments of goods of a non-commercial character from third countries (codified version) (OJ L 286, 17.10.2006, pp. 15–18).

last update 26.04.2022